Back in the day, people would often spend their entire career working for one company, and retire with the company’s pension plan. These days, only government employees and those who work for large corporations generally receive a pension, while the rest who work for smaller companies or are self-employed must rely on their own savings through RRSPs or real-estate investments. Until now.
The government of BC, (and other provinces like Quebec, Alberta and Saskatchewan are slated to follow), has passed legislation to provide well-regulated, low cost pooled pension plans to the rest of the population (about two-thirds of British Columbians).
The new Pooled Registration Pension Plans will be managed by licensed financial institutions, similar to RRSPs, and will provide similar investment options to an RRSP. Unlike a workplace pension, the plan moves with its members between different jobs, making it accessible and practical for many. Employers will not be required to match contributions, however there will be incentives for employers to do so. Plan members could benefit from lower administration costs for the large, pooled investment management, however the plan is voluntary so the investment profit will be limited by how much money people actually contribute to it.
The PRPP annual contribution limit will be tied to your RRSP investment limit for that year, so having both does not increase your tax-deferred retirement contribution limit.
The jury is still out as to whether PRPPs will actually help more Canadians to save for retirement. Unless small business employers are able to afford contributions to their employee’s plans (with the help of Government deductions), then most Canadians will still not be able to afford retirement contributions even close to their limits, and the banks will continue to profit from something that creates yet more administration fees.
I urge everyone to look at this in the future and if you are able to, start making contributions — no matter how small. One day you will be very glad you did.
For more information on PRPPs, see the CRA’s PRPP Q&A page.